High frequency trading is set to account for almost half of Europe’s equities trading volumes by 2012, amid concern from regulators that the practice reduces transparency in the financial markets.

High frequency participants, who use the latest software to spot patterns and benefit from tiny price movements across different trading venues, will account for 45% of Europe’s equities trades by 2012, according to a report published by advisory firm Aite Group.

They currently account for 25% of Europe’s equities trades and will reach 30% by the end of the year, Aite said.

Aite's report said: "As liquidity returns to European markets and frictional costs are removed, we can expect an expansion of high frequency players."

These traders have become increasingly prevalent as a result of the European Commission’s markets in financial instruments directive, known as Mifid, in 2007, which has resulted in trading to fragment and take place across a multitude of electronic venues.

Critics that argued high frequency trading drives up prices and, because of their short-term view, might not act in the interests of companies. However, some participants believe they perform a valuable function, acting as electronic market makers, helping to add liquidity and making prices tighter.

The Aite report also found that European equity trades taking placing anonymously, or in the "dark", are set to increase from around 2% today, to 8% in 2012.

"Buy side traders' increased awareness of alternative venues combined with uncertainty of volumes has led to a rise in demand of dark-only, liquidity-aggregating strategies," the report said.

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These so-called dark pools allow large institutional orders to be traded without prices moving against them. They have come under criticism, particularly from exchanges and alternative venues, who argue that the pools existing within investment banks, known as crossing networks, are subject to lower levels of regulatory scrutiny.

The European Commission is set to undertake a sweeping review of Mifid this year, dubbed Mifid II, with high frequency trading as well as dark pools likely to be high on the regulators' agenda.

The Aite report, entitled 'the European equity electronic trading landscape: how deep is your pool?', was based on conversations with market professionals and brokers that provide electronic trading solutions.

In addition to forecasting increases in high frequency trading and dark pools, the report also anticipates that the share of volumes taking place on traditional exchanges will continue to fall, to around 55% in 2012 - compared to a level of around 75% this year.